Put Off Retirement

Maya MacGuineas is the president of the Committee for a Responsible Federal Budget and director of the Fiscal Policy Program at the New America Foundation.

Updated February 14, 2011, 3:57 PM

In the search for possible reforms, increasing the retirement age is a no-brainer. Doing so would help control spending in Social Security and Medicare, bring in more revenues without raising taxes and help the economy grow.

Indexing retirement ages to life expectancy would generate hundreds of billions in savings over the next few decades.

Gradually pushing up the retirement ages (currently 65 for Medicare, and 66 for Social Security — headed slowly to 67) to 68 and then indexing them to life expectancy would generate hundreds of billions in savings over the next few decades.

As we live longer, we have to work longer. Delayed retirements will protect seniors from outliving their private savings. Working longer increases the labor supply and helps economic growth, as well as increasing income tax revenues, thereby reducing the overall budgetary shortfall. The new health care exchanges will allow seniors to purchase health care privately, so there is no longer the need for Medicare to subsidize them so early on.

We should also raise the age for early retirement age for Social Security benefits from 62. That policy signals to people that it is reasonable to stop working early, which harms the economy and increases the likelihood that seniors with those smaller benefits will fall into poverty.

This proposal is not particularly popular (few ideas that would generate large budgetary savings are.) Specific accommodations will obviously have to be made for those who cannot work longer. But done right, raising the retirement age is one of the most defensible and sensible changes we can make.